3 Compelling Biopharma Stocks For 2013

Biopharma stocks are notorious for their extreme volatility, making them perfect money-making vehicles for day traders. As a result, many classic value-investors like myself tend to stay far away from the biotech sector in general, and look for more stable, predictable stocks. Upon closer inspection, however, I believe investors that avoid this sector due to its inherent volatility are missing some tremendous growth opportunities (i.e., 15-45% increases in market cap within a year). In this article, I discuss three biotech stocks with upcoming catalysts in their drug pipelines that should drive marked growth in the respective market cap of each company in 2013. As such, these three companies merit consideration by investors seeking compelling growth stories in the coming year.

Santarus Inc (NASDAQ:SNTS) focuses on developing and marketing drugs for patients treated by physician specialists. The company's drug Uceris, indicated for the treatment of mild to moderate active ulcerative colitis, is under review by the FDA with a target action date of January 16th, 2013. Even though shares of SNTS have already climbed 12% in the past month on anticipation of UCERIS's approval, I believe Santarus is still a strong buy at the current PPS of $11.04. Santarus has a strong drug candidate pipeline with two drugs currently in Phase III trials (Ruconest & Rifamycin SV MMX), one drug showing positive results in Phase I trials (SAN-300), and the company is cash flow positive due mainly to its anti-diabetes drug franchise composed of Glumetza and Cycloset. With sales of Cycloset projected to double to approximately $30 million and Glumetza possibly hitting the $200 million mark in 2013, the company is on track to grow revenues by roughly 15% year over year. An approval of Uceris by the FDA come January 16th would thus add even more value to Santarus's already compelling growth story. I view any pullback in SNTS shares post-FDA approval of Uceris as a buying opportunity.

Raptor Pharmaceutical Corp. (NASDAQ:RPTP) is a biopharmaceutical company that researches, produces and delivers medicines that provide better life quality for patients with severe, rare diseases. The company presently does not have any FDA approved drugs, but Raptor does have an April 30th, 2013 PDUFA date for PROCY SBI (RP-103), a novel treatment for the metabolic disorder cystinosis. A decision from the European Medicines Agency (EMA) on the drug is also expected sometime in the first half of 2013. Recent analysts have placed a $9 target on the stock if the FDA approves RP-103, and Oppenheimer has placed an outperform rating on the stock. The PDUFA date for RP-103 was recently pushed back by the FDA from it's initial date on January 30th to April 30th, which appears to be the reason bio run-up traders hit the eject button earlier this week (i.e., RPTP was down over 6% on the news of a delayed PDUFA). If the stock continues to pull back, I view this as an excellent opportunity to employ a dollar-cost averaging strategy to build a position ahead of April 30th, 2013 PDUFA date.

Lexicon PharmaceuticalsInc. (NASDAQ:LXRX) is a biopharmaceutical company that applies gene knockout technology to research potential drug targets encoded in the human genome. Lexicon has a strong drug candidate pipeline that should propel LXRX shares significantly higher in 2013. Specifically, the company's flagship drug candidate Telotristat etiprate (LX1032/1606) is presently in Phase III clinical trials for carcinoid syndrome, and Phase II clinical trials for ulcerative colitis. The Phase II trials for ulcerative colitis are projected to conclude this month, with the results announced on March 31st, 2013. If the results are positive, this should act as a strong catalyst for LXRX shares in 2013.

Telotristat etiprate also has Fast Track status and Orphan Drug designation from the FDA, and Orphan designation from the European Medicines Agency for its indication in the treatment of carcinoid syndrome. According to the company, Telotristat etiprate "significantly improved multiple dimensions of carcinoid syndrome with a favorable safety profile" in Phase II clinical trials. The Phase III trial initiated in October 2012 is a 12-week, randomized, double-blind, placebo-controlled study to evaluate the efficacy and safety of telotristat etiprate as a treatment for carcinoid syndrome. After the 12-week treatment period, patients will enter a 36 week open-label extension period where all patients will receive telotristat etiprate. Phase III results are projected to be announced in Q1 2014.

Lexicon also recently announced that it received Fast Track status from the FDA for its drug (LX1033) designed to treat diarrhea-predominant irritable bowel syndrome. Fast-Track status should help accelerate the review of the LX1033, which is presently in Phase II trials.

In conclusion, I believe shares of LXRX are undervalued at their current price of $1.91 given the number of positive catalysts on the horizon. Investors that buy at current prices should thus realize a decent return on investment in the coming year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article was researched by a biotech intern (YK) at Enhydris Private Equity, Inc.

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